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FOS Blog

22 Feb
2019

When is a Reg B “Notice of Action” Required

When is a Reg B “Notice of Action” Required

Regulation B requirements are intended to protect the applicant(s) from discrimination.  The regulation requires financial institutions to make timely credit decisions and give an applicant distinct reasons for a denied loan application.

A written “Notice of Adverse Action” must be sent within 30 days of receiving a completed application, for any of the following situations:

  • A loan request is denied
  • An existing credit arrangement is terminated (unless for inactivity or delinquency)
  • Terms of an existing credit (interest rate, reduced erm or increased collateral requirement) are “adversely” changed.
  • Extension of a business loan is refused, if applied for in accordance with the financial institution’s procedures.

If further information is requested from the applicant and they do not respond to the request, a notice of adverse action should be sent for either incompleteness or if enough data exists to evaluate and decision the loan request, the applicant must be given the specific reason(s) for denial in the notice.

If a counter offer is accepted, the bank is not required to send a notice of Adverse Action.

If the applicant does not accept a counter offer or does not respond to the counter offer within 90 days, a notice of Adverse Action must be sent with the reason(s) for denying the original request.

A written “Notice of Action” taken is not required under the following circumstances:

  • The consumer has agreed to a change in terms
  • Terminating an existing credit because it is delinquent or inactive
  • Denial of a loan request that if for a loan the financial institution doesn’t offer
  • A business loan application (can be verbal, not written)
  • If an applicant withdraws an application before a decision is made

It is also important to be aware of a customer’s inquiry vs a verbal request.  Explaining the financial institution’s general loan policies and loan products to a consumer’s inquiry is fine.  However, if further inquiries result in discussing details regarding the consumer’s income/debts or overall financial condition results in telling the consumer that they should not apply for certain loan products, then the inquiry becomes a verbal application.

For additional information contact the author Kay M. Scarselli at kscarselli@fosaudit.com.

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